Last month I was surprised to read a headline on the industry portal Wine Industry Network titled Direct to Consumer Sales Fails to Lift the Wine Industry. As a winery whose business model works only because of direct sales, I was curious to learn more about what the author Brian Rosen, consultant and former proprietor of Sam's Wine & Spirits, meant by the headline. I posted my thoughts on Twitter:

After which, he and I shot a few tweets back and forth, elaborating our positions:

Brian's article was particularly interesting to me because it plays against the dominant narrative right now, that direct sales are on an inexorable rise, and that wineries should do everything that they can to make sure they're well positioned in this channel. What's more, that dominant narrative certainly jibes with our own experience here at Tablas Creek. When we started, we believed that we would sell all our production through the wholesale channel. Between the reputation of Beaucastel and the marketing muscle of Vineyard Brands, we thought that we could focus on grapegrowing and winemaking and the rest would take care of itself.

Five years of experience taught us that our initial expectations were unrealistic, and we made the decision in 2002 to take a much more active role in our marketing and sales. We opened our tasting room, started our wine club, began participating in a wider array of events, worked harder and more closely with our distributor partners, and started participating more consistently in the promotional efforts of the regional and varietal organizations to which we belonged. Little by little, we clawed our way out of what was a dangerous period when we were bleeding cash each year and became profitable.

In the steepest period of this climb, where we went from selling just under 4000 cases of wine in 2001 (all in wholesale) to nearly 20,000 cases of wine in 2007 (split between wholesale and direct) we saw significant growth in all our channels. Our wholesale sales increased more than 250% over that period, to some 11,000 cases. Our direct sales grew from nothing to some 9,000 cases. But each year, as we looked at our financial reports, it became clear that our growing wholesale sales, far from driving our profitability, were only about a 50/50 bet to cover the cost of selling our wine in this channel. As a company, all the profit that hit our bottom line came from the direct sales.

The greater profitability of direct sales should be intuitive, but it's likely even more important to wineries than you think. Most wineries aim to achieve the same price out in the wholesale market and in their direct sales. For product destined for the wholesale market, wineries back out the expected wholesaler and retailer markups, leading to a wholesale sell price half of full retail price. Given that the cost of producing a wine is likely half or more of the wholesale sell price, the profit of selling a case direct isn't double that of selling it in the wholesale market; it is several times greater. It is this disparity that means that a winery can offer good discounts to its wine club members and still come out far ahead.

Further increasing the relative attractiveness of direct sales is that most wineries find, as we have, that the mix they sell direct skews toward their higher-end wines, while the mix that sells in wholesale skews toward wines that are less expensive, both because the wholesale market is naturally more price-competitive and because of the practical limit on wholesale price for wines that restaurants can pour by the glass. When we did the math we realized that 75% of our revenue was coming from the 45% of our wine we sold direct, while just 25% of our revenue came from the 55% of the wine sold through the wholesale channel. In simpler terms, we sold our average direct case for three and a half times what we sold our average wholesale case for.

OK, that was a lot of background. But it gives you what you need to understand why I took objection when I read in Brian's piece, "I can tell you with 100% certainty that the DTC movement is not what you think it is and will not provide the added revenue that wineries around the globe are seeking."

The crucial question, and one that Brian himself addresses later in the article, is which wineries will benefit from direct-to-consumer sales, and which won't. A winery's direct sales is limited naturally by its cachet, its tasting room traffic, and its perception of scarcity. Even with high traffic, high cachet, and the perception of scarcity, there are only a handful of wineries selling more than 25,000 cases direct. And most wineries' direct customers are far fewer than that; even established wineries I speak to around Paso Robles typically count a few thousand wine club members. So, imagine the challenge that faces a winery making a million cases a year, trying to have direct sales matter on the bottom line. Even if they are able to build up to 25,000 direct cases per year (likely difficult given the challenge of creating the perception of scarcity) and able to sell those direct cases for 3.5 times what they sold their wholesale cases for, the direct sales channel would account for just 8.2% of the company's revenue.

Yet direct-to-consumer wine sales have grown to a $1.58 billion dollar industry: nearly the size of the total of wine sales to restaurants (some $1.8 billion last year). It's still dwarfed by the $7.34 billion in retail wine sales, but it's growing. So, is DTC important to wineries, or not? It depends on your size. Most wineries are small; by the Wine institute's estimate, 90% of wineries produce fewer than 50,000 cases, with three-quarters producing fewer than 5,000 cases. Every one of those wineries should be looking to consumer-direct sales to make their business viable. But most of the wine produced in America is produced by large wineries; estimates are that the three largest wine conglomerates produce half the wine sold in America each year. And the twenty largest firms account for 90% of the market. For them, as the math showed above, direct sales are not going to make a significant difference in profitability.

If you're the average bottle of American wine, produced by one of the big companies in lots of tens or hundreds of thousands of cases, you're not likely looking at a future that involves transport via UPS or FedEx. But if you're an average winery, producing a few thousand cases of wine a year, you should be focusing on selling a high percentage of however many bottles you produce directly.

Three final notes. First, why, if they'll never notice it on their bottom lines, do the big wine companies still have tasting rooms and wine clubs? I think (and based on the effort put into their direct sales by many of these large wineries, they agree) that it's valuable marketing: each direct relationship that a winery maintains is going to have a positive ripple effect as that customer communicates his or her enthusiasm to friends, and will support the work of distribution in a way similar to -- yet more profitable than -- advertising.

Second, you may be wondering why a relatively small winery like us bothers with wholesale sales at all. Like a large winery with its direct sales, we think of it as powerful marketing, for which we get some revenue to offset the costs. Having wine in great restaurants and wine shops means that customers don't have to come to us to discover us, and we have literally thousands of wine-savvy professionals around the country telling our story. If we can get all this at something close to break-even, it's a big asset.

And third, if 90%+ of wineries rely on consumer-direct sales for their livelihood, why did Brian say that it won't provide the revenue wineries are seeking? I think that there are two reasons. First, Brian comes from a retail perspective. The regulatory environment still makes it much more difficult for retailers to ship around the country than it does wineries. And retailers are all competing to sell wines their competitors can buy at more or less the same price they can. This level playing field, the regulatory patchwork, and the high cost of expedited shipping on a perishable, heavy item like a bottle of wine all combine to shield smaller local retailers from competition. Will this equilibrium last forever? Probably not. Given that Amazon is on their third foray into trying to sell wine, the e-commerce giants must see some potential here. And here is an important area that I agree with Brian: whether you're a retailer or a supplier, Amazon and its ilk are likely to be neither savior nor apocalypse in the near term.

But all that's beside the point to a small or medium-size winery. If that's who you are, you likely already know that direct-to-consumer sales isn't just your future. It's your present, too.

This Wednesday, August 13th, we welcomed sixteen tons of Syrah into our cellar, marking the beginning of the 2014 harvest. These bins were from Estrella Farms, in the warm heartland of the Paso Robles AVA, and will form the juicy core of our Patelin de Tablas. The fruit looked terrific, and the numbers were textbook: 23.5° Brix and 3.39pH.

The next day, we got four more tons of Estrella syrah and our first white: a little over seven tons of Grenache Blanc from Coyote Moon Vineyard, on a vineyard that we had grafted over to Grenache Blanc specifically for the Patelin Blanc up near the town of San Miguel. This fruit looked great too, with intense flavors, modest sugar levels and great acidity: 21° Brix and 3.38 pH.

The two locations have in common that they are from areas of the AVA that are on the warmer side. We think we're still a week away from harvesting anything off of our estate vineyard. For our planning in the cellar, it's great that we're seeing this slug of fruit before anything else. The roughly 30 tons of fruit is about 20% of what we're expecting for our Patelin, and to have it already safely put away before we're also dealing with the much more complicated harvest off our estate is a gift. It also allows us to break in our wooden upright tanks and start building the population of native yeasts in our cellar.

This mid-August beginning feels early, but it's not unprecedented. Yes, August 13th is the earliest that we've ever had fruit in the cellar, but it's only one day earlier than 1997, when the lot of estate Syrah that we harvested on August 14th was the first fruit we crushed in our newly-built winery. Given that the fruit we've welcomed so far this year comes from warmer parts of Paso, I'm not sure even that we'll break our modern record for our earliest picking off our estate, August 23rd in 2004.

More than the calendar date when we start harvesting, what we look at as important is the length of the ripening cycle, and of course the balance and intensity of the fruit. Because we saw such an early budbreak this year (two and a half weeks earlier than average) an estate harvest that begins ten days earlier than average, as this one appears poised to, actually gives us hang time about a week longer than normal. And the fruit conditions that we're seeing so far bear this out: the fruit is intensely colored and perfumed, with beautiful deep flavors and acids exactly where we'd like to see them.

I returned this week from two and a half weeks on the east coast to find a vineyard landscape transformed. In what was a sea of green we now have new colors: pinks, reds and purples in our red grapes, as well as the first hints of gold in our white grapes.

These transformations are normal for early August, and while I stand by my prediction that harvest will be a couple of weeks early, the changing colors don't mean that harvest is imminent. In fact, I was a little surprised to see that even in the earliest-ripening grapes we weren't through veraison. To give you all a sense of what things look like now, I snapped representative photos of each of the main Rhone grapes, red and white. I'll go through them in the order in which we expect them to come in, starting with Viognier, the only grape I tasted that seemed pretty close. Note the golden color; I'm figuring maybe two more weeks before we start picking:

Next, Marsanne, which was still quite green by comparison to the Viognier:

Our first red will almost certainly be Syrah, but even there I still found a few green berries and the grapes didn't taste nearly ripe. We will likely see some Syrah from warmer parts of Paso for our Patelin wines as early as late next week, but I don't expect much off our own property before the end of August:

Grenache Blanc made for very good eating -- about the sugar/acid balance of table grapes, for now -- but that's far less than the concentration that we look for at harvest. You can see in the photo below that it's also still tautly inflated. We'll look for the grapes to soften quite a bit more before we pick, likely starting early September.

There's often a gap between the early grapes above and the late grapes below, so I wouldn't be surprised to see a pause in early-mid September when much of the Viognier, Marsanne, Syrah and Grenache Blanc have come off, but we're still waiting on our later grapes. Grenache, typically next in line, is still less than halfway through veraison, and while it does ripen pretty quickly once it finished veraison, I'd still expect it to be late-September before much Grenache is coming in:

Counoise is always our last grape to go through veraison, later, even, than Mourvedre, although Mourvedre's unusually long time between veraison and ripeness means that we typically harvest Counoise first. Many Counoise vines were still entirely filled with green clusters, and the photo I got is on the advanced side for the Counoise blocks as a whole. The grapes were also still quite hard and sour, even those that had turned purple:

It's not usually possible to take a good photo of white grapes in mid-veraison, but I managed it in our Roussanne. Note the differences in color between the grapes that are still green and those that have begun to take on the russet color that gives Roussanne its name. All the Roussanne grapes were still crunchy, though those with the russet tint were starting to get sweet, while the green ones were still sour. We're likely more than a month out from even our first Roussanne pick, and I expect a significant portion of our Roussanne harvest not to happen until October:

Finally, Mourvedre, which is as usual taking its time getting through veraison. It often starts before Grenache (and always before Counoise) but it's typically the last to finish veraison. We've come to expect to wait another 6 weeks between full veraison and harvest, when most grapes take 4 weeks. We might start to pick in the very end of September, but October will see the bulk of it:

Overall, and even after the two weeks of warm weather that just concluded (eleven consecutive days between 7/23 and 8/2 that reached the 90's, with the last three topping 100) the vineyard still looks to be in remarkably good shape. The Viognier was showing signs of some end-of-season stress, but it only has another couple of weeks to go. I saw a little sunburn damage here and there, mostly in Syrah, but less than we see most vintages. And the weather forecast for the next week is perfect: highs in the upper 80's or low 90's, and cool nights in the upper 50's. That's about as good as it gets for Paso Robles in August. If all continues as we're seeing it, I think we're in for another terrific vintage.

I arrived in Paris with two bags. One small bag was full of camera equipment. A second large suitcase held a few clothes and lots of packaging material. I had come with the intention of taking France home with me to California, bottle by bottle and image by image. While I cannot share with you the wine I brought back, I can share a few images and thoughts which I hope will get you into the spirit for a trip to your local wine merchant if the Rhone itself is out of reach.

As I rolled south from Paris on France's wonderful high-speed train, the scenery through the windows transitioned from flat green meadows dotted with red brick villages to the rolling hills, tall trees and beautiful rivers of southern France. I rented a car in Avignon and followed directions to the tiny winding streets of the village of Châteauneuf-du-Pape. It was clear that these passageways -- and those similar in the other ancient villages of France -- were not intended for vehicular travel, but dated from the days when horsepower had a more literal meaning.

When you decide to visit Château de Beaucastel, take my advice and don’t follow the directions of your GPS, however well-intentioned its electronic voice may sound. It was an absolute miracle I finally found the vineyard and made it to my appointment with Cesar Perrin on time.

Château de Beaucastel is more than vineyard, offices, winery and cellar. It remains the spiritual center of the Perrins' work in the Rhone, and has been a literal home for the Famille Perrin since 1909. César’s grandmother Marguerite, widow of Jacques and father of Jean-Pierre and Francois, lives there still.

We started our tour in the vineyards that surround the winery. I had heard about the “rocky soil” of Châteauneuf-du-Pape but I was not expecting this! Large rounded rocks, rolled down by the Rhone River from the Alps, cover the vineyard, storing up the sun's warmth during the day and radiating the stored heat late into the evenings. There are vines here that are over 80 years old. It looks like a miracle that anything grows at all!

There were more similarities than differences when comparing the wineries of Tablas Creek and Beaucastel. Both use large barrels, foudres and stainless steel for whites. Uniquely, Beaucastel uses concrete vessels lined with porcelain tile for some of their reds where Tablas would use steel. Why don't we use tile-lined concrete here in California? One word: earthquakes.

At Beaucastel they have entire huge halls of foudres. These large aging vessels are the same size as -- in fact, made by and built in the same place as -- those that we have at Tablas Creek. They have one larger foudre almost double the size of the others.

Down a winding staircase, below the winery and offices, is the aging cellar of Chateau de Beaucastel. Winding hallways are stacked unimaginably high with unlabeled, unboxed bottles. Bottles ranging back a decade and more are piled on sand-covered floors, awaiting the special event for which they'll be labeled, boxed and shipped away. Since Beaucastel is sold in nearly 100 countries, each with their own language and labeling regulations, it's best to store the bottles unlabeled until they know their final destination.

The highlight of my trip was the cellar tasting. I sampled the newest 2012 Beaucastel Blanc and 2011 Beaucastel Rouge (both delicious). Then we tasted the 2009 Rouge and a very dusty half bottle of 2007 Rouge (very reminiscent of their Tablas Creek sisters but with unmistakable flavors of the Beaucastel terroir- deep, earthy and spicy). Finally, Cesar asked me what else I wanted to taste. I was so blown away by this time that I left it in his hands. He dug around for a while and returned with another very dusty half bottle and after pouring me a taste asked me to guess the vintage. He gave me a hint, that this was the vintage Château de Beaucastel was named #1 wine of the year by Wine Spectator….drum roll please… I guessed 1989 correctly! (I did my homework, you see. It was incredible! The wine was silky smooth with unparalleled depth and additional aging potential.)

My visit done, I headed back north to begin my homeward journey. As I traversed the crowded Paris subways with a suitcase loaded with wine, I decided that drinkable souvenirs may be cumbersome but are worth every exhausting step and sideways Parisian glance. I had the adventure of a lifetime and feel even more connected to the wine and wine loving people that give Tablas Creek its unique connection to France.